Worried by a recent threat from Washington to give up on the treaty altogether, Mr Mandviwala initialled the agreement in a hurry, according to sources.– APP (File Photo)

ISLAMABAD: While legislators are engaged in a crucial debate for devising fresh terms of engagement with the United States in the joint session of parliament, the government gave approval to a controversial Bilateral Investment Treaty (BIT) with Washington a couple of weeks ago.

This treaty had been pending since 2006 because Islamabad had objected to some tough clauses. Saleem Mandviwala, the Minister of State and Chairman of Board of Investment, initialled the agreement with all controversial clauses in Washington during a stopover on his way home from Canada.

Mr Mandviwala visited Canada earlier this month to attend a four-day international exhibition and conference of mineral exploration experts, which began in Toronto on March 4. A legal expert, Ahmer Bilal Sufi, told Dawn that in case of initialling a draft text of an international treaty, there may not arise any need for prior cabinet approval. However, he explained, the initialled draft of BIT would have to be presented in the cabinet for formal approval.

And for signing an agreement, prior approval of the cabinet is required, he added. An informed source in the BoI told Dawn that the board did not make public the initialling of the BIT with the US because the matter was sensitive. Experts believe the treaty would provide significant legal protection to US investors in Pakistan.

The Obama administration was using different channels and lobbying to persuade Islamabad to sign the treaty soon. Even Pakistan’s former ambassador to the United States, Husain Haqqani, advocated signing of the BIT in 2008, Dawn has learnt.

Worried by a recent threat from Washington to give up on the treaty altogether, the source said Mr Mandviwala initialled the agreement in a hurry. However, the source did not disclose whether the minister of state was given approval by the prime minister or the president for initialling the agreement.

Absence of consultation with the stakeholders on this crucial agreement was clear from the fact that even the Foreign Office was not part of the process before initialling the agreement, an FO source told Dawn.

As a result, a note of protest was sent to the ministries concerned to record the reservations of Foreign Office over the BIT agreement, and the way the Board of Investment had handled it, the source added.

Washington had reportedly warned Islamabad to sign the text of BIT in its original shape by March 31 or be ready for a fresh draft containing tougher conditions.

Pakistan and the United States were scheduled to sign the BIT during President George Bush’s visit to Islamabad in 2006, but failed to develop consensus on “the five harsh clauses”. Under the BIT, all protections are for US investors in Pakistan. While guaranteeing investor protection, it entirely ignores Pakistan’s concerns as a developing country.

Of these clauses, the most controversial is related to the extent of indirect expropriation and compensation mechanism. Under this clause, the United States wanted that in case of any loss to any intended US investor because of change in policy or government or law and order in Pakistan, Islamabad would be responsible for payment of compensation to investors.

Similarly, under the non-confirming issues the US got inserted a clause in the agreement which bound Pakistan to seek prior approval from US before finalising any export, import or taxation-related policies.

Moreover, the US also bound Pakistan to give a retrospective status to the bilateral investment treaty to cover the earlier US investments as it was not sure that the agreement would be helpful in attracting any fresh investment from US because of other issues like war on terror, law and order and travel advisory.

The other thorny issues which remained unresolved over the past six years included taxation and tariff on US investment and regulatory issues; extent of subjects for arbitration and the performance requirements in the light of World Trade Organisation, added the sources.

The agreement requires the two parties to permit the free and timely transfer of funds relating to an investment into or out of their territory. The treaty also includes international standards which require host countries to provide prompt, adequate, and effective compensation if they expropriate an investment.

The United States has signed BIT with about 40 countries, including special trade agreements with Canada and Mexico. “And in case of litigation, those countries always suffered financially who concluded BIT and FTA with the US government,” a source added.

Experts say the concessions that Pakistan has given to US investors will now automatically be offered to more than 48 other countries with whom Pakistan has signed investment treaties.

Pakistan has already been hit with three arbitrations at the International Centre for Settlement of Investment Disputes (ICISD) under its bilateral investment treaties with Switzerland, Italy and Turkey.

The legal costs incurred run into millions of dollars while the actual costs are unimaginably greater. The claim under the Turkish treaty amounts to $850 million (including interest).